| Abstract: | In the absence of labor supply constraints, this paper shows that an increase in wage-rate uncertainty alters the optimal supply of individual hours but leaves the decision to participate unchanged. In the presence of these constraints, it is shown that if researchers are concerned with obtaining consistent parameter estimates of the labor supply function, then it is important to correctly specify the type of uncertainty faced by workers. Specifically, a mean preserving increase- in wage-rate uncertainty lowers the participation rate, while an increase in non-wage income uncertainty raises participation. |
